New York City Closes Shop

Mayor Michael Bloomberg owes 200,000 small business owners an apology.

When Michael Bloomberg was first elected Mayor of New York City in 2001, the city’s small business owners were hopeful and confident that finally a successful businessman would be creating the city’s economic policy. They hoped to see an end to powerful special interests that, through political donations, had gained control over the economic policy of the city.

New York’s small business community had been in a state of crisis ever since former Mayor Ed Koch gave the keys to the city and opened all the city’s government doors to real estate speculators and developers. His economic policy of favoring only a handful of developers and real estate speculators resulted in tens of thousands of long established small businesses being forced to close. New York City had the worst anti-small business environment in the nation, and the July, 1986 Inc. magazine headline said it all, “New York, New York the Worst Place in America to Start a Business.” This anti small business environment continued under two more Mayors, David Dinkins and Rudy Giuliani. It would be up to Bloomberg to change course and save the city’s small businesses from the “death grip” that landlords had on them.

The small business community anticipated that Bloomberg’s first change would be to appoint a small business owner as Commissioner of Small Businesses. The best choice would be a Hispanic business person with no ties to the real estate industry. This would be a major change in policy because previous policy makers were closely tied to the real estate industry, and none had ever owned a small business. A Hispanic Commissioner would be justified because Hispanics owned between 42 and 45% of all the city’s small businesses.

To the disappointment of the city’s desperate small business owners, Bloomberg appointed Robert Walsh Commissioner of Small Businesses. Walsh had never owned or operated a small business. He was in North Carolina at the time of his selection, managing the Charlotte Center City Partners, a property owners/banks organization promoting a business district in that city. His background included working for the property owners as director of a Business Improvement District, the Union Square Partnership, in New York City. Walsh’s selection would create the worst anti-small business environment of any city in the nation.

A reliable way to evaluate the stability of New York City's small business community is to examine the number of Commercial Warrants for Eviction. The majority of these warrants are issued to “holdover commercial tenants” whose leases have expired, and who can’t afford to pay the new, higher rent. The consensus of business organizations is that these warrants represent about one third of small businesses; the ones that stay and fight in court. The other two-thirds walk away without a fight. During what many consider the reign of terror for small businesses — 1986-1989, the last 4 years of Koch’s term — 17,433 warrants were issued to evict small businesses, out of approximately 53,000 total small business failures. During the last full four years under Bloomberg, 2005-2008, 27,809 warrants were issued to evict, with about 83,000 small businesses forced to close. Since the successful businessman Bloomberg took office, around 152,964 small businesses have been forced to go out of business.

The circus is not the greatest show on earth; Walsh’s Small Business Services department is. For the past seven years, on paper, the department has had numerous programs to assist small businesses. If you did not see for yourself the long established neighborhood small businesses that have been forced to close every month, and the empty stores on every block in every neighborhood, you might believe that the SBS was actually helpful. The testimony by Walsh and Bloomberg on the state of the city’s small businesses before the city council is a long list of SBS programs and their successes.

Two things happened to highlight the true state of NYC’s small businesses. The first was the decline of tax dollars generated by Wall Street. This caused a shift in the focus to NYC's 200,000 small businesses, which were now called upon to carry more of the tax burden and job creation.

The second was a survey of Hispanic small businesses (see PDF, below). A new Hispanic chamber, the USA Latin Chamber of Commerce, was recently formed in New York City and conducted a citywide survey of 938 Hispanic business owners in early 2009. Over half of the businesspeople believed they were at risk to close due to high rents. Seventy percent had been forced to lay off workers due to high rents. When they first opened their businesses in NYC, 91% believed it was the best city in the nation to invest in the American Dream. Today, 84% believe New York City is no longer a good place for immigrants to open their businesses. The main reason given, again, high rents and unreasonable lease terms. Of those surveyed, 82% would not recommend to a friend or family to open a business in the city.

One of the survey's biggest surprises concerned demands by landlords or agents for “cash money” under the table to negotiate a new lease; 31% answered yes, and business organizations have come forward to predict that the real figure is between 45-55% of mostly immigrant small businesses. The results confirmed another survey (see PDF, below), this one by the USA Bodegas Assoc., that the city’s small businesses were in a “Crisis” and in peril of disappearing completely without government protection.

Bloomberg did not follow the leadership of President Obama, who called for quick actions to save small businesses. Walsh expanded his “dog and pony show” with a citywide PR campaign which claimed that the city’s small business problems resulted from the recent decline in the economy, and by offering a series of government programs: business conferences, business forums, loan programs, initiatives, all intended to stimulate start-ups and expansions. But at a recent city council hearing, Councilman Robert Jackson asked “Does the SBS have a single program to save or keep a single small business from going out of business in New York City?” Walsh reluctantly had to answer “no”.

In March, 2009 a coalition of 67 citywide business/union/tenant organizations was formed; The Coalition to Save Hispanic Small Businesses released a final report recommending that the best solutions could be found in Jackson’s Small Business Survival Act. The bill is based upon a simple system of regulating the commercial lease renewal process. It would give tenants the right to renewal, and encourage bargaining in good faith between the landlord and tenant.

A city council hearing was finally held this past June before the city council’s small business committee. The three SBS representatives took the side of the property owners against the city’s small businesses. They testified that Bloomberg would not support the bill because it would be too costly to administer at a time when funds were scarce. When asked how costly, they admitted they did not do any actual accounting, but thought it would be costly. An attorney for the Small Business Coalition explained that there was no costs associated with administering the bill since it would be a contractual process where costs would be shared equally between the tenant and the landlord.

SBS also objected that there was no need for the bill since the rental market was weakened by the recession, and landlords were negotiating with tenants to keep them. Supporters explained that the timing was ideal because it would have no impact on those landlords negotiating in good faith.

During the recent impasse, the SBS spokespeople made clear that they did not wish to seek a compromise or alternative solution. And the apology that Mayor Bloomberg owes to New York City's hard working small business people is also nowhere to be found on the table.

Stephen Null was the owner of three small businesses in New York City during the 1970s and '80s. In 1984 he founded the Coalition for Fair Business Rents, and in 1991 he co-founded the New York Small Business Congress. He is currently Director of the Lead Free Children Foundation.

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I know a lot of people that started from small businesses that grew into big companies. This is the primary target for the Mayor, stop the small businesses and you will have no competition. My friend is lucky that he did not open his restaurant equipment and supplies company in New York, he could lose money and in the end being forced to close.

If I understand the "Small Business Survival Act", if a retail or office tenant's lease expires and it doesn't agree to the landlord's renewal terms, the tenant can force the landlord to renew a lease for 10 years at a rent determined by an arbitrator. Isn't this basically commercial rent control for businesses?

Wouldn't that be harmful to entrepreneurs starting new businesses or for businesses looking to expand, since it would constrain the supply of space available for rent?

It's always sad when a long-established business fails or has to move, but there are also thousands of new businesses that start every year and need to find space. I can think of a lot of successful new stores and restaurants in my neighborhood that filled the spaces occupied by old businesses that didn't survive, and frankly I think the neighborhood is a lot better for that.